Bank of Canada's Murray targets monetary policy "misconceptions"

OTTAWA Nov 14 (Reuters) - The Bank of Canada does not
necessarily need to raise interest rates to "normal" levels even
if the economy is running at full speed and inflation is close
to the target level, Deputy Governor John Murray said in an
article published on Thursday.

Murray addressed what he called five common misconceptions
about Canadian monetary policy in the institution's quarterly
Bank of Canada review.

One such idea is the view that when inflation is nearing the
central bank's 2 percent inflation target and the economy is at
full capacity, that benchmark rates should be "neutral," a level
much higher than the current 1.0 percent.

"Headwinds and tailwinds are often present, threatening to
push economic activity and inflation higher or lower," Murray
wrote. "Monetary policy needs to lean against these forces with
opposing pressure from higher or lower interest rates to
stabilize the economy and keep inflation on target."

The comment is a reminder to markets that there is no
precise check list of factors the Bank of Canada needs to see
before raising or cutting rates.

The bank last month signaled it was less upbeat about the
economy and dropped any reference to future rate hikes for the
first time in 18 months. It doesn't see inflation reaching its
target and the economy returning to full capacity until the end
of 2015.

In his article, Murray said people who thought monetary
policy targeted the exchange rate were also mistaken.

Some market players have suggested Bank of Canada Governor
Stephen Poloz has a bias towards a weaker Canadian dollar
because of his past as head of the country's export agency,
something Poloz has dismissed. Exporters are more competitive
when the currency is weak against the U.S. dollar.

Murray said other misconceptions are that Canadian monetary
policy is determined by what the U.S. Federal Reserve does, and
that its focus on inflation ignores objectives like full
employment and financial stability.